Listing Global Depositary Receipts in London

In September 2015，China and the UK launched a feasibility study for a link between the Shanghai and London stock exchanges. That tie-up became a reality on June 17，2019 when the China Securities Regulatory Commission (CSRC) and the Financial Conduct Authority of the United Kingdom (FCA) announced the creation of the Shanghai-London Stock Connect program. On the same day，Huatai Securities，one of China’s largest brokerages，made its trading debut on the London Stock Exchange (LSE)，becoming the first company to trade via the new link.

The Shanghai-London Stock Connect is a mechanism that connects the London and Shanghai stock exchanges，and the initial stage of the program covered what is known as the westbound business. This allowed eligible companies listed on the Shanghai Stock Exchange (SSE) to issue Global Depositary Receipts (GDRs) and apply for their listing on the Main Market of the LSE. The UK’s Admission and Disclosure Standards provides that，to take part in the business，enterprises must comply with the laws and regulations of the FCA and the LSE as well as those in China. Additionally，rules set by the European Union need to be obeyed.

Procedure for GDR Issuance

The issuance of GDRs on the London Stock Exchange by enterprises from China should follow these steps:

Firstly，Chinese corporate issuers give underlying securities of the GDRs to a depositary.

Next，the depositary deposits the issuer’s shares in a custodian bank.

Thirdly，the depositary and a broker help the Chinese enterprise issue GDRs.

Then，the custodian collects the money paid by investors for purchasing the GDRs.

Lastly，the custodian remits the money to the Chinese enterprise.

Qualifications for GDR Listing

According to the Admission and Disclosure Standards and Listing Rules in the UK，as well as the relevant laws and regulations by the European Union，a Chinese company seeking admission into the LSE must meet the following requirements:

Be legally registered or validly established in other ways in accordance with Chinese laws，and operate in keeping with articles of the laws.

Have published a prospectus approved by the FCA.

Obtain an FCA-approved application to admit depositary receipts to the Official List.

Have underlying shares listed on the Main Board of the SSE.

Be approved by the CSRC.

Have a minimum market capitalization of 20 billion yuan.

It can be concluded that the qualifications are aimed at attracting high-quality Chinese companies. There are 260 Shanghai-listed companies that are eligible to list securities in London via Stock Connect，according to the UK Treasury. Chinese banks and financial institutions which are in the early stage of internationalization，as well as leading enterprises in niche industries，are expected to be the main issuers of GDRs.

Criteria for UK Cross-border Conversion Institutions

The Shanghai-London Stock Connect uses Designated Brokers (referred to as “cross-border conversion institutions” in the SSE and the CSRC rules) to enable the cross-border trading of GDRs. As provided in Article 27 of the Guidelines for the Cross-Border Conversion of Depositary Receipts under the Stock Connect Scheme between Shanghai Stock Exchange and London Stock Exchange by the SSE，any overseas securities institution intending to apply to the SSE to become a UK cross-border conversion institution shall:

Be willing and able to comply with the regulatory requirements and relevant rules of the SSE.

Have the corresponding capability to both exchange renminbi into foreign currencies and exchange foreign currencies into renminbi.

Depending on Article 82 of the Interim Measures for the Listing and Trading of Depositary Receipts under the Stock Connect Scheme between the Shanghai Stock Exchange and the London Stock Exchange，the institution also shall

Be a full member firm of the LSE.

Be a Qualified Foreign Institutional Investor (QFII) or a RMB Qualified Foreign Institutional Investor (RQFII) itself or  have an entity that it controls，by which it is controlled，or with which it is under common control that is a QFII or RQFII，except as otherwise prescribed by the SSE. It must also be financially robust and have a good credit standing and a significant asset size.

Have in place a sound governance structure and well-developed internal control rules，run a compliant operation，and not have received any major sanctions from a regulatory authority in the most recent three years.

Meet any other requirements deemed necessary by the SSE.

Cross-border conversion institutions provide interconnections for dealings between the Shanghai and London stock exchanges，subject to restrictions set by China and the UK. Examples of the restrictions include a cap on the total of GDRs determined by the CSRC. In addition，the total of cross-border funds in the Shanghai-London Stock Connect westward business shall not exceed 300 billion yuan. And the UK cross-border conversion institutions can hold no more than 500 million yuan in cash and specific investment products in China